Important not to panic during sharemarket drop
It is important not to panic when the markets are falling as has been the case recently. Whether you have a grand or two in shares or have 1000s invested in the sharemarket, it is best to ride it out the storm and just let the markets bounce back in your favour as no doubt they will. That is if you had followed the basic rules of investing.
The most important rule is to never invest in the markets money which you cannot afford to lose. If you are saving for a house then the sharemarket is not the place to invest your money-you should instead go for more conservative investments. The worst thing that can happen if you had invested your house deposit money in the sharemarket is to find that the value of your investment is reduced when it comes time to withdrawing your money.
If on the other hand you were investing for your retirement then you can afford to take risks as this is a long term investment and you will be able to take advantage of the gains in the market which for decades have outweighed the falls. Some financial advisors would tell you to scale back to more conservative funds the closer you are to retirement but that all depends on how soon after retirement you actually need the money. This is particularly relevant for those with kiwisaver accounts (NZ retirement savings scheme). (Not necessarily applicable in your own country).
It is also important to diversify your investing so that your risk is spread out over several companies and industries. If you have the means to play the market directly then this is the most important rule to follow. It will help you to withstand a sharemarket down turn better because some companies fare better than others during an economic downturn.
This week’s sharemarket down turn is a timely reminder to exercise commonsense when investing money by not placing all of your eggs in the one basket and to ride out the storm.
This article is not intended as financial advice but rather is the sole opinion of the writer.
Bob
www.robertastewart.com